The potential sale of Warner Brothers Discovery is a fascinating and mind-boggling exercise in modern capitalism and corporate valuation. The reason I care is multi-faceted. Aside from my love of WB subsidiary DC Comics (and of course by extension Superman), I also don’t think media companies should be consolidated under one corporation or prominent billionaire — in this case Paramount/Skydance headed by David Ellison, the son of Oracle CEO and fervent Trump ally Larry Ellison. Same goes for the Comcast/Universal bid and I especially don’t like the Saudis and their sovereign funds getting involved — that’s a whole separate can of worms. Paramount/Skydance has of course denied Saudi involvement, but it’s easy to believe when the Saudis are as corrupt as the sitting President and the Ellisons reap those benefits.
Frankly, I’m not surprised that Paramount/Skydance is denying Saudi involvement, there has been fervent backlash against the Saudis buying up entertainment properties especially since the announcement that WWE WrestleMania 43 would take place in Saudi Arabia — a firm slap in the face to WWE fans that quite frankly, Vince McMahon would never have allowed no matter the price tag.
The bottom line is that even with $71 billion dollars coming from Paramount/Skydance and the Saudi conglomerate, Warner Bros. Discovery (WBD) is still undervalued. Not only that, but WBD is $43 billion dollars in debt and if the company as a whole is sold, the buyer has to assume that massive debt.
WBD is basically two companies as it is, the Studio/Streaming and Traditional Media. The Studio/Streaming is worth far more than $71 billion on it’s own (the IP alone) but the Traditional Media which includes Discovery, CNN, Turner Sports etc., — while now profitable — is dragging the valuation of the Studio/Streaming.
The WBD board apparently wants $30/share, Ellison’s bids haven’t reached that level which led to the initial rejections and even the $71 billion doesn’t get there.
I don’t think Universal/Comcast is a serious offer for the whole company, nor do I think Netflix is either. Universal/Comcast would be a better choice from a moral standing but it still creates the same problem as Paramount/Skydance in terms of a media conglomerate that would almost certainly breach antitrust laws. Netflix acquiring WBD is just bad and would be a nail in the coffin of the movie business, so let’s hope that doesn’t happen.
However, WBD CEO David Zaslav has not been shy about wanting to split the company into two separate entities, let’s just call them WB (Studio/Streaming) and Discovery (Traditional Media).
I’m no expert but this plan is best in terms of both short and long term benefits for shareholders. WB is a powerhouse with HBO Max, DC Comics, Game of Thrones, Looney Tunes, Harry Potter, an extensive library — you get the idea. The IP alone is worth at least $71 billion without the debt.
Selling off Discovery and the debt that comes with it allows WB to focus on what they do best. It strips them down to their former glory as a movie studio without the frills like CNN, Discovery, Turner Sports etc.
So what do I think is happening? A classic play to drive up of the value of Discovery. WBD is seeing what the highest bids for the whole company will be. It establishes the floor or baseline and from there they can turn around, split the company and put Discovery up for auction at a higher premium.
WB is on fire right now and I’m not just talking about the success of Superman (sorry, naysayers). HBO Max is seeing an influx of new subscribers and the content is the premium quality you’d expect from HBO.
I believe — and frankly I hope, that WBD takes these bids, uses them to value Discovery splits the company and WB remains intact. This is the best case scenarios not only for shareholders both short and long term but it also increases the overall value of WB and would drive those stock prices higher than the one-off $30 a share from a buyout.
WBD splitting is also good for the entertainment industry. It doesn’t consolidate WB under another corporate umbrella that would decimate jobs and the industry as a whole, but it breeds more competition and more money to be made.
Here’s hoping Warner Brothers isn’t bought out.
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